Accelerators And Seed Deal Flow
Those of us in the early-stage tech ecosystem by now well know that saying “there are a LOT of seed and new startups” is a gross understatement. It feels like a tsunami of deal flow, and for me, I’ve outlined how I pay attention to inbound flow in terms of what gets priority. And one of the sources of that flow are the new accelerators (I’m lumping incubators, accelerators, etc. all together) combined with the culture of “demo days,” in-person gatherings where angels and professional investors collide with entrepreneurs.
Before we dive into this, let me say (1) I know a lot of people personally who run these accelerators and consider them friends (and darn good people); and (2) I know there will be a bunch of founders who will say “Hey, well, I met some great investors this way, so it can work.” And, surely, it “can” work.
Yesterday, I tweeted this: I get emails from friends @ accelerators, asking me what kind of co’s I’m interested in, or to watch online demo day (no), etc. I just now respond w/ “Anyone who wants to meet me should just ping me directly w/ their PDF deck & a short note.” Startups, don’t outsource your BD.
I got a few emails from friends asking if my tweet was in response to them. It wasn’t directed at anyone. And yet, it really applies to everyone. When I stepped back from the online discussion, it made me think about what I would do if I were running an accelerator (maybe I should?) to solve this issue. Here’s what came to mind:
1/ Standardize Formats: There are some accelerators will will coach their startups to use Google Slides, or to create YouTube videos, or to use link-sharing sites, etc. Simply asking folks to use a standard format like PDF would make a world of difference.
2/ Pitch Deck Design: There’s a robust debate about slide decks. We won’t get into that here. What I will say is many institutional investors require them, and fair or not, most investors view the pitch deck as a proxy for how the founders will present to customers. I don’t mean to say decks should be overly designed and polished — but they should be clear and substantive. Investing in resources to help founders hone this skill would be valuable.
3/ Pitch Communications: My personal belief is that if someone wants to be a founder, one of the many skills they’ll need to learn (unless they have a cofounder who does this) is to create, build, and maintain relationships with investors. Now, in different geographies or generations, folks may not have the ability to do that as easily as one could in the Bay Area, for instance. If I were running an accelerator in the Midwest, let’s say for example, I’d focus on training the current batch on how to identify and pick suitable investors, and how to send them a short, personalized email with the pitch deck. Today, what happens is the accelerator just sends over a huge list to the investors or the founders carpet-bomb investors with form or canned emails. I’d guess none of these are effective.
4/ Are Demo Days The Right Model? Just one person’s opinion, but I don’t think so. Having an event and a date everyone drives toward provides good peer pressure and a forcing function to get things done. Yet, if the purpose is to woo investors to these, I think there are too many to attend. Doing them online removes the critical in-person touch that’s required (in my opinion) to assess at the early stages. I don’t know what the solution is, but Demo Days feel like they belong to a previous era.
5/ Who Is On The Hook? An accelerator that can help a founder raise more capital would be a huge value-add. But, how possible is that in reality? Ultimately, the buck stops with the founder. Part of being a founder is simply about being able to finance the operation. Accelerators are a great forum and venue for these lessons to be taught and learned. Maybe an accelerator should take lower cap table ownership unless they deliver investors who convert? I don’t know what the right answer is, but anything is worth a shot. However, that doesn’t mean founders in those programs should assume their accelerator will help them land financing.
But being on the receiving end of this deal flow, what I can say is that because there are so many accelerators now, because formats aren’t standardized, because folks aren’t personalizing their outreach communications, and because there’s a total tsunami of seed deals flooding the market, the net result is most of these outreach attempts don’t convert positively. And while accelerators can always do more to beef up their education and training (all noble efforts), it is ultimately up to the founder to make connection and to make that sale. It’s not a function that can abdicated or outsourced — rather, it has to be owned wholly by the founder. And for my friends at these accelerators, I’m happy to help share my two cents and provide any feedback if that’s useful.